Retirement Planning: Inflation rises, and with that increase your expenses. The food you eat, groceries you buy, medicines you take, or fuel you fill in your car become costlier with time. What an Rs 10,000 amount can buy for you today may get you half of that quantity in years to come. The same rule applies for your retirement corpus also. An amount that may appear to be sufficient for you today may be insufficient when you actually need it.
Years of inflation will depreciate its value.
If you are a 40-year-old individual with monthly expenses of Rs 50,000, want to retire at 60, and need a corpus till 80 years of age, will a Rs 5 crore retirement corpus be sufficient for you amid rising inflation?
Let’s see why you may require more money at a 6 per cent inflation rate!
Rising cost of living
If you are 40 years old with Rs 50,000 monthly expenses and the inflation rate is 6 per cent, to maintain the same lifestyle next year, you require Rs 53,000 a month.
The amount will keep increasing every year. Let’s see how it will increase by the time you turn 80.
In the table you can see that at 60 years of age, your estimated monthly expense will be Rs 160,357, while at 80 years of age, the estimated monthly expense will be Rs 4,85,175.
Expenses from 60-80 years (retirement corpus)
The estimated corpus you require for 20 years of your retirement will be Rs 7,07,85,825.
The figure is much higher than Rs 5 crore, but wait, we haven’t incorporated the post-retirement investment return on it.
Post-retirement return
If you get an 8 per cent return on your post-retirement investments and the inflation rate is 6 per cent, the estimated corpus you require at 60 years of age will be Rs 3,24,11,441.31.
But we still haven’t incorporated the pre-retirement investment return, which will determine the investment amounts you need to achieve that corpus.
If the pre-retirement annualised investment return is 12 per cent, then-
The estimated one-time investment required to achieve the corpus will be Rs 33,59,989.27.
The estimated yearly investment required to achieve the corpus will be Rs 4,01,635.
The estimated monthly investment required to achieve the corpus will be Rs 35,235.
Conclusion
The corpus that may appear to you sufficient or large today may fall short of your needs when we factor in inflation. A good situation is to calculate it today and analyse how you may reach there with a lump sum, yearly or monthly investments.
(Disclaimer: This is not investment advice. Do your own due diligence or consult an expert for financial planning.)
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